Legal & Regulatory

India Regulatory Brief: Tax Exemptions for Startups, Further E-Commerce Regulations

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Center Plans Tax Exemptions for Startups

The Indian government is devising an incentive scheme for startups which proposes exemptions from service tax and excise duties.

If passed, certified startups registered under the department of science and technology (DST) will be eligible for tax exemptions until their revenues reach a certain threshold. In addition, certified startups will receive grants of up to US$1.6 million (Rs 10 crore) from the DST.

The reform push is good news for investors looking to join India’s expanding tech and startup industry. Last year venture capitalists nearly doubled their investment in the country, injecting a record breaking US$2.1 billion into Indian startups.

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India Regulatory Brief: New Medical Device Regulations for 2015, GDP Growth Revised

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India’s Medical Devices Regulations Set to Change in 2015

India’s health ministry has released a proposed draft of the Drugs and Cosmetics (Amendment) Bill. Set to be submitted to parliament for approval later this year, the new legislation would align India’s regulations with the European Medical Device Directives.

In addition to updated definitions, the new legislation would simplify import procedures and affect change across many areas including: manufacturing, sales, distribution and clinical trial of medical devices. Furthermore, a Medical Devices Technical Advisory Board would be established to manage any technical and administrative issues that may arise.

The draft has been publicly disclosed for comment by stakeholders from industry, government, and the general public.

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India Regulatory Brief: India Eases Foreign Exchange Management Laws, India/Switzerland to Exchange Tax Info

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Switzerland to Exchange Tax Info with India

On January 22, the Swiss Government agreed to cooperate with plans for the exchange of tax information with India. The discussions follow India’s pursuit to recover black money stashed by its citizens in foreign jurisdictions.

The partnership was established during talks between Indian Finance Minister Arun Jaitley and his Swiss counterpart Eveline Widmer-Schlumpf at the World Economic Forum in Davos and is a positive step in the bid to quash India’s expanding black money problem.

In 2012, an estimated US$94.76 billion in illicit wealth poured out of India, making the cumulative total outflow US$439.59 billion since 2003, according to Global Financial Integrity.

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A Guide to India’s Transfer Pricing Law, Part 2: Should BEPS be on India’s Radar?

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By Shilpa Goel – Business Advisory Associate, Dezan Shira & Associates 

In the first of this two part article, we outlined what businesses must do to comply with India’s transfer pricing laws, while stressing the key reforms introduced by the new government to bring certainty to the domestic tax system. Here, we discuss if and how India should respond to the Group of Twenty (G-20) nations’ ongoing work on base erosion and profit shifting (BEPS).

In July 2013, at the behest of the G-20 Finance Ministers, the Organization for Economic Co-operation and Development kicked off the BEPS project to address the erosion of tax bases by large groups. The BEPS project, which comprises 15 Action Items, calls upon world governments to implement change in domestic tax policies to prevent artificial segregation of taxable income from business activities that generate it. The BEPS project inter alia focuses on:

  • Tax challenges of the digital economy;
  • Effects of hybrid mismatch arrangements;
  • Controlled foreign corporation rules;
  • Interest payments and financial payments;
  • Avoidance of permanent establishment status;
  • Transfer pricing documentation; and
  • Dispute resolution.

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Land Acquisition May Become Easier in India, but Risks Remain

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 By Adam Pitman, International Business Advisory Manager, Dezan Shira & Associates 

When foreign companies announce plans to invest in India, they are often inundated with incentives from different levels of Indian government. However, outside the halls of government, officials are constrained in what they can feasibly deliver. In many cases, officials trip on their own shoelaces – projects worth billions of US dollars are currently stalled because of land acquisition regulations.

In recent weeks, the government announced two initiatives that will make acquiring and repurposing land easier for many businesses. Reforms to land acquisition and environmental regulations compliment the government’s ‘Make in India’ initiative, which is designed to improve conditions for manufacturers, but will also improve international perception of India’s investment climate.

The government’s initiatives will alter pre-investment considerations for many businesses; some burdensome aspects of land acquisition and use will be removed for projects in critical development areas. The reforms will also change the nature of on-going land disputes. However, land acquisition and environmental regulations remain sensitive issues; market entry and business advisory services are still mission-critical for foreign companies.

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India Regulatory Brief: Indian Mines Open up to Auction, India-ASEAN FTA from July

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India to begin auctions for iron ore, bauxite, zinc and copper mines

On January 12, the Indian government issued an executive order for the auction of iron ore, bauxite, zinc, copper, and a number of other mines. The announcement follows similar directives made in October last year, when India’s coal mining industry was denationalized and opened up to the private sector. 

The announcement will end almost 60 years of central and provincial governments’ complete control of India’s mines. Previously, licenses were sold to firms without any competitive bidding, which led to allegations of corruption and resulted in bad performance levels for numerous important mines. The new policy is therefore intended to enhance transparency and boost productivity. Licenses will be issued for a period of up to fifty years, with provincial governments selecting which mines go up for auction and central government setting the rules for bidding.

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India Moves Towards Revamping its Arbitration Regime

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By Shilpa Goel – Business Advisory Associate, Dezan Shira & Associates 

At the recently concluded “Vibrant Gujarat Summit” in Gandhinagar, Gujarat, Prime Minister Narendra Modi assured foreign investors of the Government’s commitment to make India one of the easiest destinations in the world to do business. Indeed, since coming to power, the Government has taken several reformative measures to materialize this intent. The proposed amendment to the Arbitration and Conciliation Act, 1996, is a step in the right direction.

An overhaul of India’s arbitration regime has been long overdue. According to the Global Competitiveness Report (2014-15) published by the World Economic Forum, India ranked 57 out of 144 countries in efficiency of legal framework in settling disputes. Although India performed relatively well among the BRICS countries, it fell several places behind other Asian superpowers, namely China and Japan, both of which secured ranks within 50 in this category.

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India Regulatory Brief: New Indian Accounting Standards, Changes to Environmental Law

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India announces revised roll-out for new Indian Accounting Standards

On January 2, India’s Ministry of Corporate Affairs announced a revised plan for the implementation of the new Indian Accounting Standards (IndAS), which largely follow International Financial Reporting Standards (IFRS). If passed, the IndAS will bring Indian company accounting procedures in line with global corporate accounting standards.

The new IndAS is applicable to large companies on a voluntary basis for accounting periods beginning on or after April 1, 2015, and on a mandatory basis for accounting periods beginning on or after April 1, 2016. The new IndAS is expected to attract significant foreign investment. However, despite wide acceptance of the international financial integration benefits, few domestic companies have operational plans for the change, owing to transitional costs, compliance burdens, or pending evaluations.

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